Is the 9-Year Long Dead Cat Bounce Finally Ending?

The term dead cat bounce is market lingo for a “recovery” after markets decline due to fundamental reversals. Markets tend to bounce back after sharp declines as participants (human and digital) who have been trained to “buy the dips” once again buy the decline, and the financial media rushes to reassure everyone that nothing has actually changed, everything is still peachy-keen wonderfulness.

I submit that the past 9 years of market “recovery” is nothing but an oversized dead cat bounce that is finally ending. Here is a chart that depicts the final blow-off top phase of the over-extended dead cat bounce:

Why are the past 9 years nothing but an extended dead cat bounce? Nothing that’s fundamentally broken has been fixed, and none of the dynamics that are undermining the status quo have been addressed.

The past 9 years have been one long dead cat bounce of extend and pretend, i.e. do more of what’s failed because to even admit the status quo is being undermined by fundamental forces would panic those gorging at the trough of the status quo’s lopsided rewards.

This 9-year dead cat bounce was pure speculation driven by cheap central bank credit and liquidity. Demographics, environmental degradation, the decline of middle class security, the erosion of paid work, the bankruptcy of public and private pension plans, the global debt bubble, soaring wealth and income inequality, the corruption of democracy into a pay-to-play bidding war, the destruction of price discovery via market manipulation by those who have turned markets into signaling devices that all is well, the laughable distortion of statistics to mask the real world decline in our purchasing power (inflation is near-zero–really really really), the perverse incentives to leverage up bets in financial instruments that have no connection to the real-world economy–none of these have been addressed in the market melt-up.

Rather, ignoring or downplaying these fundamental forces has greatly increased the fragility of the status quo. Gordon T. Long and I discuss these fundamental forces in our latest half-hour video program, 2018 Themes (29:46 min):

 

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format. 

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3 Responses to Is the 9-Year Long Dead Cat Bounce Finally Ending?

  1. WillDippel says:

    As shown in this article, there is one financial product, created by the banking sector, that could bring the global economy to its knees there are a cascade of failures.:

    https://viableopposition.blogspot.ca/2018/01/the-multi-trillion-dollar-vulnerability.html

    The potential magnitude of this failure is far greater than the size of the recent stock market volatility.

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  2. Greg Burton says:

    Charles Hugh Smith needs some help with his definition of a ‘dead cat bounce’.

    The term dead cat bounce is market lingo for a “recovery” after severe markets decline due to technical support from previous supply fundamentals (previous support pricing, put/call supply); and whose market fundamentals do not support making new highs; with any new highs unsupported by technical fundamentals (winners vs losers/new highs vs new lows); and for stocks are indicative of an increasing interest rate environment and bear markets. In secular bear markets, like the one we are entering, the increasing interest rate environment is based from ‘zero’ percent interest.

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